FRANKFURT (MNI) – The European Central Bank must closely monitor
the impact of its massive liquidity injections on inflation, ECB
Governing Council member Andres Lipstok said in an article published
Monday in Estonian paper Postimees.

“The most important thing to pay attention to is the extent to
which the [liquidity] measures affect price stability,” said Lipstok,
who also heads the central bank of Estonia.

For now, not only the ECB but also investors and international
institutions remain confident that the ECB “will succeed in ensuring
price stability, even after the implementation of the non-standard
measures,” Lipstok asserted.

While average inflation will likely exceed the ECB’s price
stability target of close to but below 2% in 2012, due to high energy
prices and tax increases in some euro area countries, most forecasters
expect inflation to fall back below 2% in 2013, he noted.

ECB chief economist Peter Praet said over the weekend that the
unprecedented E1 trillion liquidity injection “is not driving
inflation,” though he added that the central bank will observe
developments closely and counter inflation pressures if necessary.

Lipstok noted that the ECB’s non-standard policies had been
necessary given the intensity of the crisis, but he warned that “they
come at a price,” with heightened risks for central banks and taxpayers.

“As a member of the ECB’s Governing Council, I can assure you that
the risks we have taken are well-considered; all alternatives have been
discussed, and we have taken these risks to prevent the financial system
from freezing, which would have a very adverse effect on both companies
and households,” Lipstok said.

“Although I am convinced that our risk management is among the best
in the world, taxpayers need to be aware of the objectives and price of
crisis control. This is why the non-standard measures are of limited
volume and temporary in nature,” he stressed.

Lipstok also warned that “global uncertainty is still high,
although the start of this year has shown the first signs of
stabilization.” He called on euro area member states to set “their
finances straight” and to “improve cooperation” to help restore
confidence in the region.

–Frankfurt newsroom +49 69 72 01 42; e-mail jtreeck@marketnews.com

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